Correlation Between Tesla and SMS Co,

Can any of the company-specific risk be diversified away by investing in both Tesla and SMS Co, at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Tesla and SMS Co, into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tesla Inc and SMS Co,, you can compare the effects of market volatilities on Tesla and SMS Co, and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Tesla with a short position of SMS Co,. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tesla and SMS Co,.

Diversification Opportunities for Tesla and SMS Co,

-0.69

Correlation Coefficient

Tesla  SMS Co,

Excellent diversification

The 3 months correlation between Tesla and SMS is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Tesla Inc and SMS Co, in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SMS Co, and Tesla is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Tesla Inc are associated (or correlated) with SMS Co,. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SMS Co, has no effect on the direction of Tesla i.e., Tesla and SMS Co, go up and down completely randomly.

Pair Corralation between Tesla and SMS Co,

Given the investment horizon of 90 days Tesla Inc is expected to generate 1.06 times more return on investment than SMS Co,. However, Tesla is 1.06 times more volatile than SMS Co,. It trades about 0.06 of its potential returns per unit of risk. SMS Co, is currently generating about -0.02 per unit of risk. If you would invest  25,160  in Tesla Inc on September 26, 2024 and sell it today you would earn a total of  17,900  from holding Tesla Inc or generate 71.14% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	99.68%
Values	Daily Returns

Tesla Inc  vs.  SMS Co,

Tesla Inc

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Tesla Inc are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal essential indicators, Tesla sustained solid returns over the last few months and may actually be approaching a breakup point.

SMS Co,

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SMS Co, has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Tesla and SMS Co,

The main advantage of trading using opposite Tesla and SMS Co, positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tesla position performs unexpectedly, SMS Co, can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SMS Co, will offset losses from the drop in SMS Co,'s long position.

The idea behind Tesla Inc and SMS Co, pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.